Sub-trend growth likely for sometime: IMF

The International Monetary Fund (IMF) believes it could take until 2016 before the Australian economy returns to trend growth of around three per cent.

Its preliminary annual report on Australia says resource exports are expected to expand rapidly and contribute to growth, but the outlook for the non-resource sector is more uncertain.

While interest rates cuts since the end of 2011 had produced some traction and would support housing investment, the labour market remained soft and non-mining investment was being capped by a strong Australian dollar.

The local currency is acting as a "headwind" to overall growth, and despite some depreciation since April, the IMF still sees the currency as over-valued by around 10 per cent.

"Given these conditions there is a real possibility that the transition to broader based growth may prove to be bumpier than expected," the IMF said.

"The near-term growth outlook could worsen, especially if external developments keep the dollar from falling to levels consistent with fundamentals."

If this prove to be the case, wages and employment growth would slow further, consumption growth would decline and government finances would weaken.

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However, the Reserve Bank of Australia (RBA) still has room to stimulate the economy if this happens.

The Washington-based think tank has forecast Australian economic growth of 2.5 per cent this year, before output rises to a trend rate of about three per cent by 2016.

On the federal budget, the IMF said Australia's low debt and deficits compared well to its advanced economy peers even though debt increased in the aftermath of the 2008-2009 global financial crisis.

It welcomed the government's goal to return the budget to surplus over the medium term in a way that wouldn't disrupt near-term growth prospects, but noted that achieving and sustaining a surplus over the next decade would become more challenging in light of current social spending commitments.

"The (government's) commission of audit review of possible policy actions to reduce spending pressure over the medium term, expected to be finalised before the May budget, will play an important role," it said.

Treasurer Joe Hockey said the IMF had backed his future surplus plans.

"They observe that the broad aim of reaching a fiscal surplus over the medium term would help rebuild buffers and increase the policy scope to deal with adverse shocks," he said in a statement.